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MarketWatch's Hulbert: If Your Adviser Mentions 'Summer Rally,' Fire Him

By    |   Tuesday, 20 May 2014 02:06 PM

Memorial Day is approaching. Like clockwork, many advisers will start talking about the “summer rally.” If your adviser is one of them, “get rid of him,” urges MarketWatch columnist Mark Hulbert.

The so-called summer rally is entirely a figment of advisers' imaginations, claims Hulbert.

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And as an investor, that's a reason to be very concerned because who knows what other entirely fictional things these professionals may claim to see, he quips.

Make no mistake, the markets are likely to rally between June and August. But advisers who make that call shouldn't be credited for their clairvoyance because the market always rallies during the summer.

Hulbert conducted a statistical analysis of the Dow Jones Industrial Average. Since the Dow was created in the late 1800s, on average, it gained 5.27 percent from the end of May through its highest close over the following three months. That's an annualized equivalent of around 23 percent.

So why shouldn't that be called a summer rally?

Because this type of performance is not unique to summer months; there's a similar rally every season, according to Hulbert.

His analysis did not stop with May. He claims to have measured the Dow’s average gain from the end of each month to its highest close over the subsequent three months.

The result: the other months’ average rally was 5.22 percent, “statistically indistinguishable” from the 5.27 percent that was the case historically for May.

And, if you focus strictly on the post-1940 era, the average Dow gain from the end of May to its highest close over the next three months is just 4 percent. Seven other months sport higher average “rallies” than that, Hulbert adds.

In fact, we are in the midst of a “relentless stock rally” right now, notes Yahoo Finance.

The S&P 500 has gone 468 days since experiencing a correction of 10 percent or more. That’s the fourth-longest streak on record, according to Newedge

And though the S&P hasn’t closed below its 200-day moving average in over 18 months, many market participants insist that investors should brace for major declines.

It's another bizarre, unfounded idea that people are perpetuating, Maxwell Meyers declares in the Yahoo piece. Waiting for the correction has become “an absurdist activity,” he said.

If you want this summer to be special, Hulbert has advice: Use that time to subject your hunches, including the idea of a summer rally, to rigorous statistical scrutiny and you'll find almost all of them are worthless.

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Memorial Day is approaching. Like clockwork, many advisers will start talking about the "summer rally." If your adviser is one of them, "get rid of him," urges MarketWatch columnist Mark Hulbert.
stock, market, rally, summer
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2014-06-20
Tuesday, 20 May 2014 02:06 PM
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